Uber Technologies, once known for its cash-burning tendencies, has successfully turned around its financial performance and is now looking to capitalize on its recent profitability. With a consistent positive earnings record, industry analysts are urging the ride-hailing giant to consider stock buybacks and expand its international growth and membership plan.
Shares of Uber (ticker: UBER) reached their highest level since mid-2021 following the announcement of its third-quarter profit. This impressive performance not only solidifies Uber’s position in the market but also makes it eligible for inclusion in the prestigious S&P 500.
As Uber evolves as a company, it faces new challenges that necessitate a strategic focus. Priorities such as capital returns and the expansion of its membership program have taken center stage.
According to Wedbush analyst Scott Devitt, Uber should seriously consider initiating stock buybacks in the near future. The company plans to provide an update on capital returns in the next quarter, which could lead to a significant reduction in dilution caused by stock-based compensation.
In the third quarter, Uber reported an impressive free cash flow of $905 million, with unrestricted cash, cash equivalents, and short-term investments totaling $5.2 billion at the end of the quarter.
Devitt from Wedbush raised his target price on Uber stock to $57 from $55, maintaining an Outperform rating on the company’s shares.
Uber Continues to Grow Despite Challenges
Uber’s shares experienced a slight dip of 0.6% in premarket trading, settling at $49.64 on Wednesday. However, this is after a 3.7% increase the previous day following the release of their earnings report.
During the third quarter, Uber revealed that their passengers had taken a staggering 2.4 billion trips. While this is an impressive number, analysts believe there is still significant room for growth. One area where Uber can exert pressure on its main rival, Lyft (LYFT), is through competitive pricing.
CFRA analyst Angelo Zino commented in a research note, “We see potential growth in underpenetrated markets such as Spain and Germany. Lower pricing or fares could further drive trip growth.”
Another crucial factor contributing to Uber’s potential expansion is the Uber One membership plan. Introduced in 2021, this program aims to combine ride-hailing and delivery services into a comprehensive bundle. Currently available in 18 countries, the Uber One membership already boasts a substantial base of 15 million members.
Highlighting the value of the Uber One program, D.A. Davidson analyst Tom Forte stated that members spend four times more on Uber-related services compared to non-members. Interestingly, only one-third of Uber’s annual users currently utilize the platform on a monthly basis.
Forte maintains a Buy rating and a $64 target price for Uber.
